Franchise buying risky business

FRANCHISES are “a very risky investment'' according to the presiding member of a State Government inquiry into franchising laws.

The South Australian Parliament's Economic and Finance Committee is holding the inquiry to examine disclosure of information to potential franchisees, along with dispute resolution processes and formal requirements for franchises. 

Committee presiding member Tom Koutsantonis said the inquiry was needed to highlight the number of people who had bad experiences running franchises.

``Franchises are a very risky investment for people who have taken a lump sum (and then left their jobs),'' he said.

“We have had a massive response from people who've gone broke, from people who have lost everything.''

He said the plight of these failed businesses was the “invisible'' cost of the industry.

“Often a lot of franchises go broke but the public don't see it because the franchisor keeps the business going.''

Mr Koutsantonis said the committee had heard reports that franchise companies were intimidating franchisees with confusing contracts and threats of legal action.

“What we really need is a tribunal system that avoids the courts,'' he said.

This would allow franchisors and franchisees to be on an equal footing when resolving disputes, removing the need for costly court actions, Mr Koutsantonis said.

Meanwhile, the inquiry has been criticised by franchise industry representatives as ``bureaucratic red tape''.

The Franchise Council of Australia said the South Australian Government should reconsider its decision to establish the inquiry because it duplicates a recent federal inquiry.

FCA director of industry relations Stephen Giles said a state-based inquiry into a national activity was ``just more bureaucratic red tape''.

“The FCA can see no reason to justify the establishment of this inquiry, particularly when all governments appear to be united in their push to reduce red tape,'' he said. ``The biggest problem facing business is over-regulation.''

The Federal Government has just completed an extensive inquiry that recommended significant changes to the Franchising Code of Conduct.

These changes received bi-partisan support and are yet to take effect.

Mr Giles said state-based inquiries would either duplicate the results of the federal inquiry, or were designed to enable the states to enact their own franchise legislation.

“This appears to be a classic example of additional bureaucratic involvement at a state level in a sphere of business that is fundamentally a national activity,'' he said.

But Mr Koutsantonis said: “The more state governments that raise this issue, the more likely it is that something will be done.''

Source: FRANCES STEWART

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